Harvard Money Managers See Higher Compensation

Harvard Management Company announced Friday that compensation for its five highest-paid officials and former president totaled approximately $26.8 million for the year ending June 30—a turbulent time for both the markets and the company’s leadership.

Former endowment chief Mohamed A. El-Erian earned $921,000, while his five employees earned between $3.9 and $6.4 million each. The total figure represents a significant increase of 20 percent over that of the previous year, which saw total compensation of $22.3 million.

El-Arian served as HMC’s endowment chief from February 2006 through December 2007, before stepping down to return to the California-based Pacific Investment Management Company, where he previously served as a managing director. He was replaced by Robert S. Kaplan, a management professor at Harvard Business School, who served as the interim head for the remainder of the fiscal year without paid compensation.

Jane L. Mendillo, a veteran HMC employee of 15 years who left Harvard in 2002 to manage Wellesley College’s investments, returned in July to become HMC’s new chief.

The figure released today cites compensation for the fiscal year beginning July 1, 2007 and ending June 30, which saw a total endowment return of 8.6 percent—a marked decrease from the previous year’s 23 percent gains, but still far ahead of market benchmarks. The S&P 500 registered a decline of 13.1 percent in the same period, while peer investments groups as measured by the Trust Universe Comparison Service saw a median drop of 4.4 percent.

Under El-Erian and Kaplan’s tenure, Harvard’s endowment grew from $34.9 billion to a $36.9 billion. In the four months after June 30, the endowment shrunk by 22 percent, or $8 billion—the largest decline in the University’s history—and, with continued losses expected, University officials have yet to disclose its recent performance.

James F. Rothenberg '68, chairman of the HMC Board of Directors, praised the endowment managers for their work in this period of financial uncertainty.

“The Harvard Management Company has a long history of outstanding management,” Rothenberg said in a press release. “In the recent economic environment we are fortunate to have the talented investment professionals at HMC shepherding the University’s resources through the volatility and uncertainty in the markets.”

HMC rewards its internal managers individually by examining the value each manager adds to the endowment and related accounts in comparison to specified market benchmarks. This variable bonus, which makes up a large portion of each manager's compensation, can be withdrawn by HMC if the endowment later fails to perform at a level comparable to other market indices.

While the figures released today represent an increase in compensation compared to that of both 2007 and 2006, the salaries are only a fraction of what HMC managers were paid earlier in the decade.

In 2003, top HMC management officials took home a total of $107.5 million, with two employees each earning more than $30 million. Subsequent criticism led to the departure of several officials in 2005 and helped usher in a period of management and investment restructuring led by El-Erian.